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World leaders pledge to combat global crisis

With the global economy threatening to slip
into a prolonged recession, world leaders have come up with a
lengthy action plan they hope will bolster badly shaken investors'
confidence.

The plan was produced at a weekend meeting of leaders of the
Group of 20, which included the world's wealthiest countries such
as the United States, Japan, Germany, Britain and France plus
emerging powers such as China, Russia, Brazil and India.

But analysts say it will take more than one meeting, as
unprecedented as this gathering was, to turn the tide for a global
economy undergoing its worst upheavals in decades.

"This isn't going to have much impact on markets," said Sung
Won Sohn, an economist at California State University's Martin
Smith School of Business. "They made a good beginning in
formulating the financial architecture of the future, but the devil
will be in reaching agreement on the details."

C. Fred Bergsten, director of the Peterson Institute for
International Economics in Washington, said he would grade the
discussions a solid B, a far better mark he said than he has given
many of the annual economic summits of the Group of Eight major
industrial countries.

"They did a number of good things and came up with some solid
principles to guide future discussions although I think it is going
to take more than four months to reach major agreements," he said.

The summit received tepid reviews in Asia on Monday, with
analysts, investors and media saying the gathering was high on
symbolism but short on action.

"To put it harshly, there is little point in trying to figure
out ways to prevent a disease once a patient is sick," Credit
Suisse Japan analyst Shinichi Ichikawa said in a report released
Monday. "The just-concluded summit came up with no specific
prescription to alleviate the effects of the most serious
international financial crisis."

T.J. Bond, a Merrill Lynch economist in Hong Kong, said some
investors were disappointed there was no explicit announcement of
coordinated fiscal stimulus measures.

The G-20 nations agreed to hold another leaders' meeting before
April 30, a little more than three months after President-elect
Barack Obama takes office.

While the outgoing Bush administration stressed that Obama's
team had been fully briefed on the G-20 discussions, analysts
suggested that with all the problems facing the U.S. economy at
present, Obama may not be eager to wade into the intricate details
of international finance as one of his first orders of business.

But German Chancellor Angela Merkel disagreed, saying she was
hopeful an Obama administration will participate fully in the G-20
efforts.

"I have not the slightest doubt that we will be able to proceed
along the way we set out today," she told reporters at the
conclusion of Saturday's meeting. "This is a reasonable approach
that the new president will surely support."

Private analysts, however, noted that the G-20 joint statement
papered over major disagreements between the countries. The
Europeans, led by French President Nicolas Sarkozy, favor more
government control over markets, while the U.S. position is that
better regulation, not more regulation, is needed.

The emerging developing countries such as China want a greater
voice in international financial institutions such as the
185-nation International Monetary Fund, setting up a conflict with
Europe, which doesn't want to give up the voting power it has
presently.
Even before the current financial crisis struck with ferocity
this fall, these issues were the subject of heated debates and
there was no sign at the weekend meetings that any nations had
given ground on positions they had staked out previously.

Analysts said financial markets may be disappointed that the
communique made only broad promises to "take whatever further
actions are necessary" to stabilize the banking system and boost
economic growth.

Some countries had hoped for numerical goals for increasing
government spending by a certain percentage of a country's gross
domestic product. The Bush administration resisted such a
commitment, mindful that the U.S. rescue actions already taken
could push the federal budget deficit above $1 trillion in the
current budget year.

However, Obama and Democrats in Congress have talked about the
need for a second stimulus package. With the U.S. economy showing
signs of a sharp downturn, Congress likely will approve further
assistance.

The National Association for Business Economics released a
somber new forecast on Monday projecting that the overall U.S.
economy, which shrank at an annual rate of 0.3 percent in the
July-September period, would contract at a rate of 2.6 percent in
the current October-December quarter.

Just a month ago they predicted the economy would post a 0.1
percent GDP growth rate in the fourth quarter.

"Business economists became decidedly more pessimistic on the
economic outlook for the next several quarters as a result of the
intensification of credit market stresses," said NABE President
Chris Varvares, chief economist at Macroeconomic Advisers.

The NABE panel of 50 top private forecasters said they expected
the economy would shrink again in the first three months of next
year, and they predicted the unemployment rate, currently at a
14-year high of 6.5 percent, would rise to 7.5 percent by the end
of 2009.

By wide margins, the panel believed that the recession and
severe financial crisis that began in the United States would
engulf much of the global economy.

The NABE panel predicted that Britain and much of the rest of
Europe, Japan, Canada and Mexico would all suffer recessions in
coming months while China and India were expected to see slower
growth but avoid outright contractions.

President George W. Bush, who served as host for the G-20
discussions, said it was the seriousness of the current crisis that
had convinced him that massive government intervention was
warranted.

He said he felt "extraordinary measures" were needed after
being told "if you don't take decisive measures then it's
conceivable that our country could go into depression greater than
the Great Depression."